Garrow Wessendorff - President and Chief Executive Officer
Without a doubt 2020 was a difficult year to be in the oil and gas business, including for us here at Panther. With so many variables and uncertainties at play in the US land market, predicting drilling activity for this year could be likened to water-witching. However we are encouraged by things to come, and as evidenced by some of our peers and competitors we think the market sentiment for 2021 is upbeat.
This market outlook optimism is due primarily to the strengthening of oil prices, the growing availability of the Covid-19 vaccine, and the recent passing of a new round of stimulus by Congress.
To look back at what happened in 2020, the WTI oil price briefly entered negative territory in April before settling in at about $15/bbl. This was a direct effect of the worldwide economic downturn resulting from the COVID-19 pandemic and was the most significant pricing dip since the late 1990s. Global production of around 100 million barrels per day overtook the reduced demand beginning in late February/early March of 2020 resulting in major oversupply and the record April low price. To recover, operators worldwide lowered production to match the decreased demand and managed to somewhat stabilize the imbalance around late May/early June.
Thankfully, pricing has recovered to just over $50/bbl, but we are all (operators and service companies alike) still feeling the pain. In North America, the rig count is hovering around 410, down from almost 900 this time last year. Those that are currently working or under contract, are earning lower day rates. Obviously less drilling limits the associated service work. Many operators and service companies have filed for bankruptcy, and many more have taken the opportunity to consolidate debt and restructure.
Drillers Thoughts
While activity has decreased all around, the most active states historically has not changed. These are Texas, New Mexico, North Dakota, Louisiana, Pennsylvania, and Oklahoma.
Looking more closely at how drilling contractors have been impacted, H&P, with the largest fleet, reported only 25% utilization in their Q3 2020 earnings statement, down from a not-so-great 68% the year prior. As of this writing, Patterson-UTI reports only 66 rigs working on average, down from 122 rigs working on average this time last year. Fortunately, the rig count has been trending up a bit, as Patterson has picked up six rigs since announcing Q3 results a few months back. At that time Patterson-UTI CEO Andy Hendricks was upbeat stating that financial results had exceeded expectations and that he expected rig activity to continue to improve into the first quarter of this year. So far, his predictions have been on target.
While rig activity may be trending up, pricing doesn’t seem to follow. Anthony Petrello, Chairman and CEO of Nabors recently commented that rigs are going back to work, but pricing is lower than average implying that they are doing so at reduced day rates. This reflects pricing across the board, as service companies trade margin for utilization. Sadly, most are still trying to recover margin that was lost during the last downcycle in 2016.
Service Companies are Cautious
Looking at the major service companies Halliburton and Schlumberger each talk about signs of market improvement but are extremely cautious and leery of sharing any significant future-market sentiments.
In October, Schlumberger CEO Oilveri Le Peuch said he believes the next two quarters are a period of transition for the service industry at the trough of this cycle and that major producers had set the conditions for a long-term activity rebound. Le Peuch went onto say even with availability of the vaccine, subsequent waves of Covid-19 outbreaks pose a significant risk to this outlook. Halliburton is a bit more opaque, commenting that they cannot estimate how long the events will persist, or the impact they will have on their business.
2021 – A Look at Things to Come
No matter the industry, 2020 has certainly left its mark on businesses, ours included. For some time, maybe forever, I expect this year will be accompanied by an asterisk in all the record books to note unprecedented anomalies. But now that 2021 is here, and based on current market indicators and sentiments, we believe market strengthening will continue. As oil prices have stabilized and continue to increase slightly, we also anticipate associated market improvements in pricing and equipment utilization.
At Panther Fluids, we’ve built a reputation in the industry for providing great customer service. Our packaged fluid management solutions are helping our customers save time and money, while giving them peace-of-mind to focus on drilling a successful well. Our primary goal through this downturn has been to help our customers be successful because we view each of them as partners and the services we provide as part of an essential relationship. If they are successful, we are successful. That is our operational philosophy through good times and bad.
We have been able to navigate through a turbulent 2020 in a sound financial position because of great customers, a dedicated Panther team and solid investor backing. As I look forward to 2021, I see great things to come as we continue to service existing customers, bring on new ones, and expand our product offerings.
At Panther Fluids Management, our drilling fluid systems are backed by years of experience and have consistently lowered overall mud costs for clients. We consult with the operator to design the best fluid system for each well; including everything from discrete services like mud and screens to fluids engineering to complex closed-loop systems for solids control to haul-off and disposal. We understand the challenges brought on by high temperature and high-pressure formations and can adapt the fluid system to any changes in temperature and pressure that may be encountered while drilling. Contact Panther Companies today for the latest in drilling fluids technology.